Nelson Peltz - All posts tagged Nelson Peltz

Nelson Peltz’s Trian Fund Management has laid out its game plan for Procter & Gamble (PG) in a 94-page presentation released yesterday.

But can Peltz fix what ails the consumer products titan?

Peltz is fighting a proxy battle with P&G, seeking a seat on the board in an effort to revive revenue and profit growth. He’s campaigning hard for support ahead of the company’s Oct. 10 shareholder meeting. Plans for revitalizing the company break down into eight key areas, and include reorganizing P&G into three global business units, increase innovation, bringing in outside talent and using bolt on acquisitions to bring in small and local brands.

Peltz also wants to up P&G’s digital strategy, tie executive compensation more closely to company performance and ensure that productivity savings falls to P&G’s bottom-line.

But Morgan Stanley analyst Dara Mohsenian isn’t impressed.

Although several of Trian’s arguments make sense to us, we believe most of these arguments would take both significant time and effort to fully pay-off, and don’t view them as game changing. Net, we remain Equal-weight on PG as we believe potential benefits from Trian are already priced into PG’s stock at 14.7×2018 EBITDA, particularly given PG is resisting efforts to add Peltz to the board, and HPC industry trends are under pressure with increasing brand fragmentation, as well as a more competitive industry environment.

The activist hedge fund released a 94-page presentation Wednesday that stated its case for why investors should vote Peltz onto the board and painted an unflattering picture of the maker of Tide laundry detergent and Bounty paper towels. Trian, which owns a $3.5 billion stake, says P&G is now pressing the company to restructure and combine businesses, hire outside leadership, overhaul compensation and acquire small local brands to attract millennial shoppers, according to the Wall Street Journal’sSharon Terlep and David Benoit.

In a short statement released late yesterday, P&G did not mince words, charging that “Trian has an outdated view of our company.” Here’s the statement in its entirety.

While the P&G Board and management team will review Trian’s ‘white paper’ in more detail, it remains clear Trian has an outdated view of our Company. The fact is P&G is a profoundly different Company than it was just a few years ago. We are much better positioned from all angles: portfolio, cost and productivity, innovation and with a more agile and accountable organization and culture. We are successfully executing a winning strategy, as evidenced by our strong fiscal year 2017 results. We remain focused on delivering our plan, while preventing anything from derailing the progress we are making to create value for all P&G shareholders.

Trian says it wants to revived P&G’s revenue and profits. Investors will vote at the Oct. 10 shareholder meeting, and both sides are campaigning hard to win support. In a letter to employees and retirees sent earlier this week, P&G Chairman John Pepper stated “we have the right CEO” and asked that they vote all their blue proxy cards.

Barron’s writer Vito Racanelli penned a story in July arguing that it is hard to see the downside in Peltz’s involvement in P&G, noting his “avoidance of short-term methods” and Trian’s track record. But Barclays analyst Lauren Lieberman says there is little Trian can do to help P&G tackle various challenges.

Nelson Peltz‘ Trian Fund Management is waging battle against Procter & Gamble‘s (PG) for a seat on its board, according to the Wall Street Journal. The goal: to get the consumer product juggernaut’s sales and profit growth moving again.

Shares of P&G have risen 0.52% on the news in pre-market trading to a recent $87.55.

Trian has been in talks with the maker of Tide detergent and Bounty paper towels for five months, which culminated last week in P&G rejecting the asset manager’s demand to name its co-founding partner Peltz as a director. Trian, which owns roughly $3.3 billion of P&G stock, urged shareholders to vote Peltz at the company’s meeting.

Weak Total Shareholder Returns. Over the past decade, the Company has underperformed relative to both its peers and to the S&P 500. In fact, the Company’s total return to shareholders over the last ten years was less than half that of its peers. We believe P&G needs to address the factors contributing to this consistent underperformance.

Deteriorating Market Share. Over the past five years, P&G’s organic sales growth has decelerated and the Company has lost market share across most of its categories. The Trian Group believes that disruptive and existential threats are impacting the entire consumer packaged goods industry, including changes in technology and consumer behavior, and the Company must act with the greatest possible urgency to address the market share it is losing to both its peers and smaller local competitors, who are adapting to industry changes more effectively than P&G.

Excessive Cost and Bureaucracy. The Company’s management acknowledges the need to reduce cost and bureaucracy, but it is clear to us that these critical issues have not been sufficiently addressed.

· Trian’s analysis shows that the Company’s $10 billion cost-cutting program, launched in 2012, has had no discernible impact on profits or sales growth. In particular, the program did not drive earnings growth given that operating profit was essentially flat from 2012 to 2016.

· Although the Company has stated that it has identified up to $13 billion of additional cost savings, given P&G’s track record, the Trian Group is concerned that this initiative will be as ineffective as the 2012 program in driving sales growth, earnings growth and shareholder value creation.

WSJ’s David Benoit pointed out that the $223 billion company is “the largest ever to face a proxy fight.”

Nelson Peltz’s Trian Fund Management made a few changes to its portfolio during the second quarter, probably the most noteworthy being the exiting of one of the fund’s oldest positions – Tiffany & Co. (TIF).

Nelson Peltz’s Trian Fund Management has sold nearly all of its stake in Baltimore-based fund shop Legg Mason (LM) to Shanda Group, a holding company based in Singapore.

The transaction ends years of cage-rattling by the activist investment house — Legg Mason’s largest investor — intended to stem persistent outflows and enhance shareholder returns.

Legg Mason disclosed that Shanda agreed to purchase substantially all of Trian’s stake, 9.9%, noting in a release that Trian is selling “for portfolio management reasons.” A filing submitted to regulators showed that Trian affiliates sold 10.5 million shares at $32 a pop.

Peltz served as a Legg Mason board member before stepping down in 2014 and Trian was Legg Mason’s largest shareholder as of the end of last year. Trian pressured former Legg Mason CEO Mark Fetting to step down in 2012 and helped to install current chief executive, Joseph Sullivan. Barron’s own Beverly Goodman has written extensively on Legg Mason and Peltz’s maneuvering. Shares of Legg Mason were flat in Tuesday trading and are down 42% over the past 12 months.

Here’s Sullivan on the transaction:

“We are pleased to welcome Shanda as a long-term strategic shareholder. We look forward to benefiting from their expertise in important areas of growth for us.

We want to express our appreciation for Trian Partners, with whom we have had a long-term and constructive partnership during a period of significant change in our company and industry. Together with our affiliates, we will execute on our strategy to provide global clients with increasingly valued and relevant choices for investment strategies, products and vehicles and we welcome Shanda‘s partnership in that endeavor.”

Mr. Peltz served on the Baltimore-based company’s board since October 2009, and pushed for change at the firm, which had suffered from years of investor outflows. During that time, Legg Mason has returned more than $2 billion of capital to shareholders.”

Legg Mason’s shares dipped 2.2% to $54.99 in recent trading on Tuesday and remain up 26% so far in 2014.

“Peltz has been hugely positive agent for change in the fund firm, which once had $1 trillion in assets under management and a $137 share price—a far cry from Friday’s close of $27.52. Things rapidly went south when the firm’s founder and sole CEO, Raymond “Chip” Mason, retired in January 2008—a variety of performance, structural, and cultural issues that Barron’s has documented pretty thoroughly.”

Citigroup analyst William Katz notes the importance of the idea, expressed in Legg Mason’s press release, that Peltz expects to continue to be a shareholder for the foreseeable future.

However, he writes “clearly his exit will cause investors to fret whether his leaving implies full(er) value in the stock. No question, the shares have more than doubled since his stake was established.”

Katz keep his $65 price target intact, however, speculating that Peltz’s “exit is more a function of focus elsewhere by Mr. Peltz rather than an indictment on LM.” He also notes that Legg Mason has both the ability and inclination to buyback shares, which could counter selling pressure.

U.S. stock futures were little changed on Thursday, with Federal Reserve Chairman Ben Bernanke in the spotlight for a second day and earnings from Google (GOOG), Microsoft (MSFT) and Morgan Stanley (MS). The investment bank’s share price rose 2.2% ahead of the open after the bank reported quarterly earnings that beat Wall Street estimates.

WSJ.com: Talk about a nail-biter. Writers Shira Ovide, Sharon Terlep and David Benoit write that Dell’s (DELL) $24.4 billion buyout plan was floundering late Wednesday as a group of big investors signaled their intent to vote against a deal that would remove the technology icon from the public markets. In other news, J.P. Morgan Chase & Co. (JPM) is in discussions with U.S. electricity regulators about paying what would be a record fine to settle allegations that the bank manipulated electricity markets in California and the Midwest, according to people familiar with the talks.

NYTimes: After months of speculation, activist investor Nelson Peltzwent public on Wednesday with his plans to seek a merger of PepsiCo (PEP) and MondelezInternational (MDLZ). And the financial firm Raymond Jamesplans to announce one of the more extensive efforts by a financial firm to mine the benefits of social media.

Legg Mason (LM) just posted its first quarter of net asset inflows since 2007. The stock is up modestly today as major indexes are falling. Good news, right?

Well, the company warned of further outflows this month. Legg Mason’s equity funds continue to be at particular risk. In fact, equity assets would be down by 11% this year minus market appreciation, by the count of Susquehanna Financial Group’s Doug Sipkin.

From Dow Jones Newswires’ Mia Lamar:

Performance issues at Legg Mason have run deeper than some peers’. In the latest quarter, 56% of its funds topped their Lipper averages on a three-year basis, compared to 76% at fellow money manager T. Rowe Price Group Inc. (TROW), for example. Yet, as with other asset managers, Legg Mason is also grappling with rising investor preference for cheaper, passively managed products such as exchange-traded funds.

Sipkin — who has a “negative” rating on the stock — parses this state of affairs in light of LM’s buyback efforts. He argues that now is no time to continue funneling wads of cash back to shareholders.

The asset manager is walking a “fine line” in the face of accelerating equity outflows and a rising stock market, per Sipkin, who says LM board member and activist investor Nelson Peltz of Trian Fund Management is “hurting recovery prospects” for the business. Peltz is a well-known advocate of returning cash to shareholders:

[T]he market continues to provide a favorable tailwind that will not last forever. In addition, every dollar spent on buyback increases the need for additional cash, debt, or equity that could be used to rebuild the franchise by re-investing in potential affiliates with better growth profiles. Risk around a rating downgrade also has to increase post the 7.4% organic decay and the likely 7% annualized pace in October already ($2 billion equity, $1 billion fixed income). Recall Moody’s said on May 16 that the company’s rating could be downgraded if long-term organic decay remained above 6% for two or more quarters.

The firm transferred roughly $45 million of Legg Mason stock to one of its investors, a move that cuts Trian’s stake to 9.5%, from 10.5%. It means that Peltz, a Legg Mason board member, is no longer the asset manager’s biggest shareholder, report the Wall Street Journal’s Kirsten Grind and Joe Light. T. Rowe Price (TROW) now holds more Legg stock, according to the duo. The investor who received the shares wasn’t disclosed.

About Focus on Funds

With exchange-traded funds ballooning in popularity, it’s harder to and more important to separate fact from fiction. On the Focus on Funds blog and ETF Focus column, L.A. native Crystal Kim lifts the hood on ETFs, mutual funds and hedge funds to highlight overlooked values, actionable ideas and potential pitfalls.